Home ownership has traditionally been limited to those people who are able to save enough money to provide both a down payment and cover the closing costs of the real estate transaction. A typical residential purchase requires the potential homeowner to provide at least 10% of the cost of the home as a down payment, along with these closing costs. This can make home ownership prohibitive for a large portion of the population.
Due to the prohibitive cost of purchasing a first home, a large segment of the population is deprived of the advantages of home ownership. These advantages include tax advantages, such as credits for property tax payments and interest deductions, along with intangible advantages, such as the pride of owning a home, and the ability to have a home customized to the property owner's liking.
The segment of the population that cannot afford home ownership usually ends up in a leasehold arrangement in which the landlord owns the property, and the tenant must pay rent on a regular basis. Thus, the landlord retains the advantages of owning real property, while the tenant has a place to live but none of the advantages of home ownership. Further, the landlord can raise the rent at the end of a tenancy, requiring the tenant to either pay the increased rent or find a new leasehold to rent.
It should also be noted that a conventional purchase of a fee simple interest in real property is normally financed over a long time frame, 20-30 years. However, the average homeowner moves approximately every five to seven years. Thus, the owner of a fee simple interest in real property, who wishes to move before the financing in the real property is paid in full must deal with the difficulties of finding someone to purchase their fee simple interest in order to pay off the financing company.
Further, there is another segment of the population who, having purchased a home using the traditional method of making a down payment and receiving a mortgage, find themselves unable to continue the mortgage payments in a timely manner. Currently, these homeowners have limited options. They can stop paying the mortgage and allow the mortgage holder to foreclose the property. They could also try to sell the property in order to pay back the mortgage holder. Both of these options result in the homeowner relinquishing their home. In the case of a foreclosure, the homeowner also destroys their credit rating and loses their equity in the real property.
It is desirable to have a method for creating home ownership which allows the segment of the population, which is currently prohibited from owning a home, to be able to afford the purchase of residential real property. It is also desirable to have a mechanism by which a person can enjoy the benefits and advantages of home ownership without having to provide a large down payment. It would further be desirable to have a means of financing the purchase of a home, which would allow the homeowner to subsequently move on without the difficulties of finding a purchaser for their fee simple interest. Finally, it is desirable to have a means of refinancing the mortgage of a home which would allow the homeowner to retain ownership interest in the property, lower their monthly payment, possibly stop paying mortgage insurance, and protect their credit rating.